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China unveils $72.3 billion tax breaks for electric vehicles and green cars

China unveils $72.3 billion tax breaks for electric vehicles and green cars
by Insider Desk
June 22, 2023

In a major move to revitalize its slowing auto sales growth and promote the adoption of electric vehicles (EVs) and green cars, China announced a massive 520 billion yuan ($72.3 billion) package of tax breaks over four years.

This initiative, the largest in the industry, exceeded market expectations and sent shares of major automakers soaring.

China, the world’s largest auto market, has been grappling with weakening sales growth, raising concerns about its economic stability. However, with this extensive financial support unveiled, industry experts anticipate a significant boost in EV sales. The tax breaks were widely anticipated following an earlier government commitment to foster the industry.

“The extension by another four years beat market expectations,” remarked Cui Dongshu, Secretary General of the China Passenger Car Association, expressing optimism about the impact of this policy. As per the statement released by the Ministry of Finance, new energy vehicles (NEVs) purchased in 2024 and 2025 will be completely exempted from the purchase tax, amounting to a maximum of 30,000 yuan ($4,170) per vehicle. Subsequently, the exemption will be halved and capped at 15,000 yuan for purchases made in 2026 and 2027.

China has previously provided subsidies for EV purchases for over a decade, but the program ended last year. The new package builds upon the current NEV purchase tax exemption, which was set to expire at the end of 2023. NEVs encompass a range of vehicles, including all-battery EVs, plug-in petrol-electric hybrids, and hydrogen fuel-cell vehicles.

Following the announcement, Chinese auto shares experienced a rally, and electric vehicle manufacturers such as NIO witnessed a surge of 3.5%. Vice Minister of Finance Xu Hongcai revealed that the cumulative NEV tax breaks, first introduced in 2014 and extended three times since exceeded 200 billion yuan as of last year.

At a press conference, Xu stated that this year’s exemption alone is expected to surpass 115 billion yuan, indicating that the newly unveiled package of 520 billion yuan will be the industry’s largest ever amount of tax breaks.

These tax incentives place NEVs at the forefront of a comprehensive effort to reinvigorate growth in the world’s second-largest economy. In recent years, the Chinese government has actively promoted NEVs through various incentives, contributing to the success of domestic players such as Li Auto, NIO, and BYD. Notably, backed by Warren Buffett’s Berkshire Hathaway, BYD has surpassed Volkswagen in China and emerged as the country’s leading automaker in sales this year.

Industry analysts predict that the purchase tax exemption cap will drive the growth of more affordable models, primarily produced by domestic manufacturers, rather than premium vehicles from foreign counterparts. NEV sales experienced a setback earlier this year after the government ended the EV purchase subsidy program.

However, they rebounded following price reductions by automakers like Tesla and the previous extension of the purchase tax exemption.

Susan Zou, Vice President at research firm Rystad Energy, expressed optimism, stating, “This will aid China’s EV growth.” Zou anticipates EV sales will grow by 30% in 2024, surpassing this year’s estimated 15% growth. May data from the China Passenger Car Association revealed a 10.5% month-on-month increase in NEV sales and a significant 60.9% year-on-year surge, even amidst the lingering effects of COVID-19 on auto production and sales.

In addition to the tax breaks, several local governments have announced fresh stimulus measures to bolster sales, expanding the range of incentives introduced earlier this year. The government of Zhengzhou, the capital of Henan province, stated that it would distribute car purchase coupons worth 50 million yuan between June and August, allocating 60% of the total amount to NEV purchases.

Tags: ChinaElectric vehicle
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